Delta-ee first published a study on Home Energy Management (HEM) back in 2010. We didn’t know it yet but this was the dawn of the connected home market, with companies like Nest starting to get some momentum in the US, and Alert Me who would later be acquired by Centrica.
You probably know what happened between 2010 and today: smart thermostats are everywhere, most industries are making IoT one of their key priorities, Alexa is one of the world’s most famous AI technologies, and you are very likely to find a Philips Hue light bulb on display in your usual high street retailers.
But what of HEM? What happened to the holistic vision of a dynamic and intelligent management of the energy flows in the home? Well, that market hadn’t changed much, until about a year or two ago. More and more companies have been working on interesting HEM use cases recently, to provide either self-consumption optimisation or electricity system optimisation services. Just to mention a few:
- Tiko, the SwissCom subsidiary, is providing flexibility to the Swiss balancing market by switching on and off thousands of heat pumps. Tiko has now expanded to other promising markets such as Germany (with Sonnen) and France (with Direct Energie).
- Sharp is a strong player in the PV and A/C industry in Europe. The company now offers a HEM device that will enable the optimisation of the self-consumption from PV generation, towards compatible heat pumps in Germany.
- There Corporation, a Finnish SME, is leading the way in Europe for residential demand response. There Corporation is using connected controls in hot water tanks to provide flexibility at times of high electricity demand.
Both the self-consumption optimisation and the network optimisation could potentially bring a lot of value to end-users and to the industry value chain, but this isn’t necessarily the case today, and certainly not the case in every European country.
On self-consumption, let’s compare Germany and France:
- Germany is the largest PV (>1M households equipped) and energy storage (>50,000) market in Europe and has strong incentives from increased self-consumption. That mostly explains why Germany has been the target of most HEM providers so far, resulting in the majority of HEM sales in 2016.
- Although France does have a decent size PV market, France’s new community solar PV regulation doesn’t create a strong incentive for self-consumption. Also, the current feed-in-tariffs are relatively high for solar PV. Therefore, why bother installing a HEM if you have solar PV system?
There could be changes coming soon in France, with self-consumption laws scheduled to be finalised in September 2017. However, like for other countries, HEM solutions are unlikely to be economically viable before quite a few years.
For access to residential grid services and demand response, again, regulations are likely to go in the right direction to unlock potential values. While activities and conditions for flexibility will be improving, large scale penetration is still unlikely to happen before 2020 at the earliest.
That said, once the right regulatory framework is in place in some countries, there could be a lot of value coming from electrically-driven heating or cooling towards ancillary grid services and from demand optimisation. Coming back to France, Voltalis has already connected around 100,000 homes to their platform to sell ancillary services to the system operator.
The latest Delta-ee ‘HEM state of the European market’ report lays out the size of the prize. Of course, the prize varies hugely from market to market, according to the mix of technologies installed in a home, and to the way a particular home uses energy. Our analysis shows that the value could be as high as the following (for a German household with electric heating, rooftop PV and a battery):
Around €1,100 savings / year for the end-user*;
Up to €1,000 of service fees and DSR revenue / savings** to be shared across the value chain. This number should also be added to the upfront revenue from the HEM system itself: €100-€300.
So overall, there is no doubt that the connected home market – and its millions of European users – is dwarfing the HEM market today. While a lot of players are currently scratching their heads on how to actually extract value from connected home, there is certainly a big prize to win at the end of the road for those who focus some of their efforts on HEM. Delta-ee forecasts over 200,000 HEM systems to be installed annually by 2021, and that’s a conservative view! There could be considerable upside on this if the electricity systems values are unlocked by changes to regulations. The changes in the regulatory framework could potentially drive more companies to commit to deliver HEM at scale and if this happens, you better be well-positioned to capture the prize!
*These estimations come directly from our energy storage research service
** These estimations have been made by our flexibility team